The intestine comprises an exceptional venue for a dynamic and complex interplay of numerous chemical and biological processes. Here, multiple chemical and biological systems, including the intestinal tissue itself, its associated immune system, the gut microbiota, xenobiotics, and metabolites meet and interact to form a sophisticated and tightly regulated state of tissue homoeostasis. Disturbance of this homeostasis can cause inflammatory bowel disease (IBD)—a chronic disease of multifactorial etiology that is strongly associated with increased risk for cancer development. This review addresses recent developments in research into chemical and biological mechanisms underlying the etiology of inflammation-induced colon cancer. Beginning with a general overview of reactive chemical species generated during colonic inflammation, the mechanistic interplay between chemical and biological mediators of inflammation, the role of genetic toxicology, and microbial pathogenesis in disease development are discussed. When possible, we systematically compare evidence from studies utilizing human IBD patients with experimental investigations in mice. The comparison reveals that many strong pathological and mechanistic correlates exist between mouse models of colitis-associated cancer, and the clinically relevant situation in humans. We also summarize several emerging issues in the field, such as the carcinogenic potential of novel inflammation-related DNA adducts and genotoxic microbial factors, the systemic dimension of inflammation-induced genotoxicity, and the complex role of genome maintenance mechanisms during these processes. Taken together, current evidence points to the induction of genetic and epigenetic alterations by chemical and biological inflammatory stimuli ultimately leading to cancer formation.